Kentucky businesses are trying to make sense of an executive order signed by President Biden in July that affects non-compete contracts. In short, the executive order makes it harder to use non-compete clauses.
Why change non-compete clauses?
According to supporters of the order, there’s been almost excessive use of non-compete agreements over the last few years. These agreements keep talented people from working at any competitors for a number of years after they leave the company.
If a person who’s really good at their job wanted to work for a different company, they wouldn’t be able to work with any competitors for a certain number of years after they leave. It seems reasonable to an extent, but non-competes can keep workers out of work for years if they leave their company.
The new executive order tells the Federal Trade Commission to limit non-compete clauses on a federal level. Non-compete agreements can still be used, but the manner in which they’re used will look different.
How can this help businesses and startups?
Non-compete contracts hurt smaller businesses that might not have the leg up that larger corporations do. Startups or small businesses with a great mission can’t get people to join their team who are already in the field because of non-competes.
Startups from Apple to Amazon got as huge as they are today because talented people were able to leave their companies and start their own. Non-compete contracts make that hard to do in today’s market, if not impossible.
Most startups have to either sell or disband due to not having a competitive edge in the marketplace. Being able to have talented people join their team could help create a more competitive market.
What if my employer asks me to sign a non-compete?
Employers can still ask their employees to sign a non-compete contract, but the terms and conditions must be narrower, or it might not hold up in court. Details about what non-compete contracts will look like in the future are still being figured out.
It’s natural to have a lot of questions before signing a non-compete contract, so you may want to reach out to a lawyer before signing any non-competes.